Integrated Reporting – Destination in sight?
A recent ICAS-hosted discussion offered an insight into developments in Integrated Reporting.
There is a healthy debate under way into developments in Integrated Reporting and how organisations might benefit from the adoption of Integrated Reporting principles.
This was brought into particular focus when ICAS recently hosted a dinner discussion attended by the Scottish Finance Directors Group and Paul Druckman, CEO of the International Integrated Reporting Council (IIRC).
Paul defined Integrated Reporting as the means by which an organisation communicates to its stakeholders: 'What we are? What do we do? How do we differentiate ourselves? How do we create value? What keeps us awake at night? Where do we want to be?'
Corporate reporting is currently susceptible to an element of gloss and management spin and it can often be difficult to spot the substance beneath the surface. An organisation's business priorities, achievements and performance are now being addressed in the strategic reports in the UK, but these are not always clearly linked to the overall strategy, i.e. there is no evidence of connected thinking. In other words, they do not tell the story of how the business creates value.
One, therefore, does question whether many of these organisations are aware of and understand the connection between their strategy and their performance, or if they have just failed to communicate this connection.
A survey conducted on a sample of 2013 strategic reports revealed that the majority of the organisations sampled listed their KPIs but less than half of them connected these indicators to their business model and strategy.
And it is this gap in connectivity that Integrated Reporting seeks to fill. Applying this type of connected thinking, often referred to as integrated thinking, to the reporting process, will help to inspire confidence in company reports and an organisation's performance. This is the message that Integrated Reporting is trying to convey.
There are now over 100 companies worldwide enlisted in the IIRC pilot programme. Of these, around 60% have issued an Integrated Report. Some examples of emerging practice in Integrated Reporting on an international level can be found on the IIRC website.
In the UK, we are beginning to see some good, emerging examples where the principles of Integrated Reporting have been incorporated within the Strategic Report.
United Utilities expresses how it creates value in the short, medium and long term within its Strategic Report as well as the connectivity between the organisation's activities and the individual capitals that those activities consume/affect.
There are other examples available and these are expected to increase in number as organisations become more comfortable with the concept and respond to investor/stakeholder expectations and demand.
So it is evident that the corporate reporting process is evolving and there are opportunities to explore new forms of media and means of outreach to all stakeholders with an interest in an organisation's performance and prospects.
So how do we engage stakeholders in the Integrated Reporting process? Of the organisations that have already developed an Integrated Report, some have stuck to the traditional style of report but others are embracing new technology and considering alternative means of communicating the corporate message.
Developments in digital communication have made it possible for organisations to conceive new, inventive and imaginative means of articulating the corporate story. We know that many investors prefer to meet face to face with company representatives to hear the message first-hand. This message is often communicated in the form of a presentation. So perhaps the presentation itself can be the Integrated Report.
The important factor is that there is no definitive format for an Integrated Report. The measure of the success of Integrated Reporting will be a reporting environment in which there is a clearer communication of an organisation's story and greater connectivity between its strategy and its financial performance.
A lot of what is required is already being produced in the current reporting process. Integrated Reporting is simply a way of refining the manner in which this process is communicated.
There are a number of ways in which organisations might benefit from this clearer reporting environment, which is more holistic and reflects all the resources consumed and the impacts of the company's operations (where material); not just the financial aspects.
Internally, there will be a greater awareness of the future challenges and opportunities facing the organisation. In turn, this enhanced communication will give external stakeholders, in particular investors, an insight into the organisation's activities and provide an opportunity for greater engagement with them to ensure that their longer term needs are reflected in the organisation's decision-making process and strategy.